Reverse Charge in Service Tax

Reverse Charge - Service Tax being paid by service receiver instead of Service Provider is already practiced in case of GTA transactions and Import of Services.

With effect from 01-07-2012, few more service categories have been included under Reverse Charge. Under this approach, for the payment of Service Tax, Service receiver cannot claim the general exemption of 10 lakhs.

Under this scheme new services with partial reverse charges are introduced. Where the service provider and receiver are liable to pay Service Tax in prescribed ratio

Example: Full & partial reverse charge services

Description of Services

% of Service Tax payable by the Service Provider

% of Service Tax payable by the Service Receiver

Transportation of goods by road

Nil

100%

Sponsorship Services

Nil

100%

Supply of manpower or security agencies

25%

75%

Works Contract

50%

50%

Using Tally.ERP 9 users can account all the reverse change services.

Example: ABC Company received services from Vibha Security Agency for Rs. 1,54,635. While raising the invoice service Provider has charged Service Tax on 25% of the Services. On 75% of the assessable value, ABC Company has to calculate Service Tax payable to the government.

To record the above transaction

1. Create the Service Provider Ledger

2. Create the Service Ledger

3. Record the Transaction in Journal/Purchase Voucher (to account the expenses)

4. Record the Payment Voucher (to account the payment)

5. Record a Journal Voucher (to raise Service Tax liability)

1. Create the Service Provider ledger

Go to Gateway of Tally > Accounts Info. > Ledgers > Create

In the LedgerCreation screen:

Enter the Name of the Party Ledger e.g. Sri Road Transporters.

Select Sundry Creditors from the List of Groups in the Under field.

Set Maintain balances bill-by-bill to Yes.

Enter the Default Credit Period, if required.

Set Is Service Provider/Receiver to Yes.

Set the option Set/Alter Service Tax Details to Yes and press enter to view Service Tax Details screen

In Service Tax Details screen enter

Registration Number and Date of Registration (This is not mandatory).

Type of Classification: In this field select Reverse Charge from the list of Classifications.

Enter the MailingDetails and TaxInformation

Press Enter to accept and save.

2. Create Expenses Ledger

Go to Gateway of Tally > Accounts Info. > Ledgers > Create

Enter the Name of the service expense ledger you wish to create, for e.g., Security Services

Select Indirect Expenses as the group name in the Under field.

Set Inventory values are affected to No.

Set Is Service Tax Applicable to Yes.

In Default Service Category field select Taxable Service from the List of Service Categories.

Note: As per Circular No. 165/16/2012-ST, w.e.f. November 20, 2012, service-specific accounting codes have been restored. For transactions recorded on and after the 20th of November, 2012, the appropriate service category has to be chosen. For more details, click here.

Press Enter to save.

3. Record the Transaction in Purchase Voucher (to account the expenses)

To record the Purchase Voucher

Go to Gateway of Tally > Accounting Vouchers > F9: Purchase

Press F2 and change the date to 2-11-2012

In Party A/c Name field select Vibha Security Agency

Under Particulars, select Service Ledger - SecurityServices and press enter to view Service Tax Details screen.

In Service Tax Details screen

In Type of Ref field select New Ref from the Method of Adjustment.

In Name field accept the default reference Number displayed Purc/13-1 which can be changed by the user.

In Type of Service field service type - ReverseCharge selected in party ledger will be defaulted.

In Category/Service field the service category selected in the Service Ledger will be defaulted.

Press F12: configure and enable the option Allow to override Service Category during entry to Yes and save.

Note: As per the new Reverse Charge system, on Security Services Service Provider is liable to pay tax on 25% of the assessable Value while raising the invoice. On the remaining 75% of the Assessable Value the service receiver is liable to pay tax.

Press backspace key to navigate to Category/Service field and press Enter to view TaxablePercentage screen.

Enter 100% in TaxablePercentage field

In Tax Liability % (Service Provider) field, enter 25%

Note: In Release 3.7, Tax Liability of service provider has to be specified in TaxablePercentage field:

The provision to specify taxable percentage as well as the tax liability of the service provider in Taxable Percentage screen is available from Release 4.5 onwards.

Service Amount: In this field enter the Service Amount of Rs. 1,50,000

Amount (Incl. of Tax): The amount specified in Service Amount field plus Service Tax will be displayed in this field.

Note: Service Tax is Calculated on 25% of the Assessable Value i.e. 37500.

In Amount field Service Amount of Rs. 1,50,000 will be displayed

Select Service Tax Ledger e.g. Service Tax @ 12%. Service Tax amount will be calculated and displayed automatically.